Income Tax Appellate Tribunal - Mumbai
Yes Bank Ltd., Mumbai vs Assessee on 5 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
ौी आर.
आर. सी.
सी. षमा[, लेखा सदःय एवं ौी ǒववेक वमा[, Ûयाियक सदःय के सम¢ ।
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. : 23/Mum/2012
(Assessment year: 2007-08)
Yes Bank Ltd, Vs ACIT, Central Circle - 44,
9th Floor, Nehru Centre, Discovery of Room no. 656,
India Ltd., Dr. Annie Besant Road, 6th Floor, Aayakar Bhavan,
Worli, Mumbai -400 018 M K Road,
ःथयी लेखा सं.:PAN: AAACY 2068 D Mumbai -400 020
अपीलाथȸ (Appellant) ू×यथȸ (Respondent)
Appellant by : Shri Yogesh A Thar
Respondent by : Smt. Abhakala Chanda
सुनवाई कȧ तारȣख /Date of Hearing : 18-11-2014
घोषणा कȧ तारȣख /Date of Pronouncement : 05-12-2014
आ दे श
ORDER
िौ ǒववेक वमा[, Ûया स:
स:
PER VIVEK VARMA, JM:
Instant appeal is filed by the assessee against the order under section 263, passed by CIT-7, Mumbai, dated 14.11.2011, wherein, the following grounds have been raised:
"1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income tax-7, Mumbai ["the CIT"] erred in invoking the provisions of section 263 of the Income Tax Act, 1961 ("the Act") and directing revision of assessment order passed under section 143(3) of the Act by the Deputy Commissioner of Income Tax -7(3), Mumbai ("the AO") on the alleged ground that the said assessment order was erroneous and prejudicial to the interest of the revenue.
2. The Appellant prays that order passed under section 263 of the Act to be struck down as null and void ab initio. Without prejudice to Ground I GROUND II
1. On the facts and circumstances of the case and in law, the CIT erred in directing the AO to disallow the claim for deduction under section 35D in respect of amortization of expenditure incurred on initial public offer of Equity Shares amounting to Rs. 3.28 crores (being one fifth of the total expenditure of Rs. 16.39 crores) on the ground that the Appellant is not an industrial undertaking.
2. The Appellant prays that it be held that on the facts and circumstances, invoking section 263 for directing such disallowance is not in accordance with law and that disallowance of the claim for deduction under section 35D is not called for.
2 Yes Bank Ltd ITA 23/M/2012 GROUND III The appellant craves leave to add, amend, alter and/or delete any/all of the above grounds of appeal".
2. The facts are that the assessee is a bank and in the banking business. In its computation of income, the assessee bank, amongst other claims, claimed an allowance of Rs. 3,27,82,000/-, being 1/5th of the expense claimed as deduction under section 35D, on the total expense incurred on the issue on IPO. The assessment was framed under section 143(3) on 31.10.2009.
3. As per the order of the CIT under section 263, the issue on which revision proceedings was initiated, was the deduction under section 35D, not available to a finance company, because, as per the provision, the deduction is available to an industrial undertaking. Since the assessee is a bank, the deduction, as per specific wordings in the section is not available to an undertaking which is not an industrial undertaking.
4. It was pointed out that a detailed submission was made before the CIT and it was also placed on record that in the ROI, the assessee had made a following note ...
"Deduction of Rs. 3,27,82,000/- claimed under section 35D of the Income Tax Act, 1961 ("the Act") During the financial year 2005-06, the assessee had incurred an aggregate expenditure of Rs. 16,39,10,000/- on Initial Public Officer ("IPO") of equity shares made. The Issue closed on June 12, 2005. It has claimed a deduction under section 35D for Rs. 3,27,82,000/- being one-fifth of the total expenses incurred. This is the second year of claim for deduction.
The assessee submits that section 35D grants a deduction/amortization in respect of expenses incurred by a company in connection with the issue, for public subscription, of shares or debentures of a company over a period of five years. Since the foregoing expenses on IPO are in connection with the issue of shares for public subscription, one-fifth of the total amount thereof is eligible for deduction under section 35D. The assessee further submits that it is an "industrial undertaking" for the purpose of section 35D based on the following cases:
3 Yes Bank Ltd ITA 23/M/2012 • CIT vs Emirates Commercial Bank Ltd. (262 ITR
55) where the Bombay High Court, which is also the jurisdictional High Court, has held that Banks are "industrial undertakings" and eligible for deduction under section 32A of the Act • HSBC Securities and Capital Markets (India) Pvt Ltd (1384/M/2000) where the Hon'ble Mumbai ITAT has held that even a share broking entity is an "industrial undertaking" for the purpose of section 35D.
Therefore, the claim of the assessee for deduction under section 35D is in accordance with law and is allowable".
5. In the course of assessment proceedings, the AO sought to clarify from the assessee the correctness of allowance of 1/5th expense under section 35D vide his order sheet noting on 12.10.2009 (copy supplied by the assessee). The assessee vide letter dated 26.10.2009, gave specific submissions on the issue raised by the AO.
6. While passing the order, the AO, however, did not mention about the query raised in the assessment order.
7. On this lapse, the CIT, initiated revision proceedings under section 263.
8. Before us, the AR submitted that the issue is viability of proceedings under section 263. In the process of arguments, the AR very fairly submitted that in the preceding year, the action of the CIT in initiation of proceedings under section 263 was sustained as there was no enquiry done by the AO. But here in the instant case, in the instant year, the AO had made all enquiries and relevant replies had been given. On the basis of question raised and the answer given by the assessee, the AO having got satisfied, did not mention the issue in the assessment order.
9. The AR also submitted that in any case the issue of allowability of 1/5th expense under section 35D in case of the 4 Yes Bank Ltd ITA 23/M/2012 assessee in the preceding year has been admitted by the Hon'ble Bombay High Court under section 260A.
10. On this background, the AR referred to the case of the CIT vs Peerless Consultancy & Services Pvt Ltd reported in 248 ITR 178 (SC), wherein the Hon'ble Supreme Court held that, "Where a company was engaged in processing the data furnished by its customers by using IBM Unit Record Machine Computer, it was held that the assessee received vouchers and statements of accounts from its customers and converted them into balance sheet. Such activities amounted to 'processing' of goods and the assessee was held to be an industrial company and was entitled to the concessional rate of taxation. Following the aforesaid decision in the instant case, the Tribunal was justified in holding that the assessee was an industrial company entitled to investment allowance".
11. The AR referred to the case of HSBC Securities India Holdings Ltd vs JCIT, ITA No. 1394/Mum/2000 (Copy enclosed), wherein the coordinate Bench at Mumbai were seized with an identical issue of allowance of expense under section 35D on increase in the authorized share capital. The coordinate Bench accepted the claim of the assessee following the ratio laid down in the case of Peerless Consultancy Service (supra) and CIT vs Emirates Commercial Bank Ltd, reported in 262 ITR 55 (Bom).
12. The AR submitted that the basis of invocation of section 263 is the enquiry done by the AO. He, therefore submitted that in so far as the basis of initiation only is seen, the notings in the order-sheet as recorded by the AO and the replies made and submitted is on record, which clearly shows that the AO made proper enquiry to come to a conclusion. Merely putting the result of the enquiry made by the AO is not of consequence, as laid down by the coordinate Bench at Mumbai, in the case of Reliance Communication Ltd. vs DCIT, ITA No. 2915/Mum/2012, wherein it has been held (at different places), 15.1. While finalizing assessment, it is the duty of the AO to examine each and every aspect of the return except tiny or inconsequential items. However, it is not 5 Yes Bank Ltd ITA 23/M/2012 necessary to incorporate all the aspects examined by him in the assessment order. An assessment order ordinarily contains discussion on the aspects with which the AO does not agree with the assessee and proposes to make additions. It is so because his action is again subject to scrutiny by appellate authorities. At the same time, there is no bar on the AO to also include all or any of the relevant aspects of assessment in his order, where he even agrees with the assessee's claim. But incorporating such relevant aspects in the assessment order is discretionary and not mandatory. "If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the assessment order would become needlessly large. So long as there is material on record to indicate that the AO did enquire into all the relevant aspects of the assessment, it cannot be considered as a case of lack of enquiry empowering the CIT to exercise jurisdiction under section 263. If we simply go by non-mentioning of a particular issue in the assessment order as a mark of non-application of mind by the A.O., then probably every assessment order would fall within the domain of an "erroneous order". The crux of the matter is that where the Assessing Officer applied his mind, which is evident from the enquiry conducted by him during the course of assessment proceedings, the assessment order cannot be branded as erroneous due to non-application of mind merely because there is no mention of certain issues in the assessment order on which the Assessing Officer, after due enquiry, got satisfied.
In case the CIT fails to point out the mistake of the AO in such categories of the cases, no revision is possible. The assessee escaped revision in Gabrial India Ltd.(supra) because the AO had conducted enquiry on the aspect taken note of in the revision but the CIT could not point out as to how the assessment order was erroneous on this issue. It goes without saying that an assessment order can be construed as wrong only where the AO adopts a view which is not sustainable in law or, in other words, is not a possible view.
16. Adverting to the facts of the instant case, we find that the Assessing Officer made enquiry about the above referred three aspects which have been noted by the CIT for exercising jurisdiction under section 263. Upon such enquiry, the assessee made submissions by placing all the relevant documents before the AO. Thus it can be seen that this case does not fall in the category discussed in para 15.1. above. The mere fact that the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the assessment order erroneous when these issues were properly looked into by the Assessing Officer. Now let us see whether it can be brought within the ambit of para 15.2 above. From the details filed by the assessee it can be inferred that the AO not only enquired into these three issues but also got satisfied with the assessee's reply 6 Yes Bank Ltd ITA 23/M/2012 submitted from time to time in support of its stand. Resorting to the provisions of section 263 in such a situation could have been possible only on the ld. CIT showing that the assessment order was erroneous on such three aspects".
13. The AR also referred to the case of Malabar Industrial Co. Ltd. vs CIT reported in 243 ITR 82 (SC), wherein it has been held, "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
The phrase 'prejudicial to the interest of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by the Supreme Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue".
14. The AR, basing his arguments on the above case laws, submitted the action of the CIT was unjustified from the point of view of the fact that the issue of allowance of 1/5th expense under section 35D has been admitted by the Hon'ble Bombay High Court as substantial question of law under section 260A in 7 Yes Bank Ltd ITA 23/M/2012 ITA No. 1010 of 2012 (copy enclosed) and the questions of law admitted are, "Pc:
1 Heard both sides. Perused Section 35B of the Income Tax Act, 1961. In view thereof, the Appeal raises a substantial question of law and deserves admission The Appeal is ADMITTED on the following substantial questions of law
(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in not following the decision of the jurisdictional High Court in the case of Commissioner of Income Tax vs. Emirates Commercial Bank reported in 262 ITR 55?
(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the Appellant is not an industrial undertaking so as to be entitled to deduction under Section 35D of the Income Tax Act, 1961?
(c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the omission of the word "industrial" by the Finance Act, 2008 is prospective and, therefore, would not apply for the Assessment Year 2006-2007?
2. The Respondent/Revenue waives service".
15. The AR, therefore, submitted that from all angles, the initiation of revision proceeding was infirm and therefore, should be cancelled.
16. The DR strongly supported the order of the CIT, impugned before us.
17. The DR submitted that the main reason for incorporating the provision is to scrutinize the orders of the lower revenue authorities. In the instant case, the DR submitted that, because the AO failed to incorporate the issue in the order under section 143(3), it gets into the zone of infirmity, which the CIT, rightly, sought to revise, by initiating the order passed by the AO under the provisions of section 263.
18. We have heard the arguments from either side, the issue before us is legality of initiation of proceedings under section 263 and consequent passing of the order under section 263.
8 Yes Bank Ltd ITA 23/M/2012
19. The section starts from the wordings, "The Commissioner may call for and examine the record of any proceeding under the Act ...". Here we have to make a distinction between record and order, because, both these terms have distinct connotations. An order is the mind of the AO/Officer to incorporate or not to incorporate any point in the order, whereas the record forms the basis for formation and construction of the order. It is the record of the case, from which, one can ascertain, as to whether the AO had conducted adequate enquiry to form a legally correct inference. It is, then upto the AO/revenue authorities to incorporate his inference drawn in the order.
20. We entirely agree with the decision of the coordinate Bench in the case of Reliance Communication Ltd (supra), wherein, it has been observed, "If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the assessment order would become needlessly large. So long as there is material on record to indicate that the AO did enquire into all the relevant aspects of the assessment, it cannot be considered as a case of lack of enquiry empowering the CIT to exercise jurisdiction under section 263. If we simply go by non- mentioning of a particular issue in the assessment order as a mark of non-application of mind by the A.O., then probably every assessment order would fall within the domain of an "erroneous order"
21. It has been accepted by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., wherein it was observed, "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous.
22. In the decision of Malabar Industrial Co. Ltd. (supra), we observe, that the Hon'ble Supreme Court also looked into the issue from another angle, i.e. whether two legally possible views lead to initiation of revision of order and also where the issue itself is debatable, in such a case, the Hon'ble Supreme Court held that, it is not permissible for the CIT to initiate revision proceedings under section 263.
9 Yes Bank Ltd ITA 23/M/2012
23. This view has been taken by the Hon'ble Bombay High Court in the case of CIT vs Gabrial India Ltd., reported in 203 ITR 108 (Bom), wherein it has been held that "in order to exercise jurisdiction under section 263, Commissioner must have material to prima facie come to a conclusion that the order of ITO is erroneous as also prejudicial to the interest of the revenue".
24. In the proceedings before us, the DR could neither elaborate nor assist us to convince us that the inference drawn by the AO, after conducting exhaustive enquiry was an erroneous view.
25. We also find that the CIT did not initiate the proceedings himself but initiated the proceedings on the proposal received from the AO.
26. This in our opinion, too is against the legislative spirit, because, the provision contemplates independent application of mind by the CIT, because the section says "Commissioner may call for and examine the records of any proceedings under the Act and if he considers ...", which means that the proposal for initiation of revision proceedings must be initiated by the CIT, because, it is the CIT who has to call for examine the record", as held by the Coordinate Bench in the case of Ashok Kumar Shivpuri in ITA no. 631/Mum/2014 (where one of us was the party).
27. Looking at the issue from this angle also, the initiation of revision proceeding become infirm and illegal.
28. In the light of our observation as above, we cancel the order of the CIT and consequentially restore the regular assessment dated 31.10.2009.
10 Yes Bank Ltd ITA 23/M/2012
29. In the result, the appeal as filed by the assessee is allowed.
Pronounced in the open court on 05.12.2014 Sd/- Sd/-
(आर. सी. षमा[)
आर. सी. (ǒववेक वमा[)
लेखा सदःय Ûयाईक सदःय
(R C SHARMA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 5th December, 2014
ूित/Copy to:-
1) अपीलाथȸ /The Appellant.
2) ू×यथȸ /The Respondent.
3) The CIT -7, Mumbai
4) The CIT-concerned/Add. CIT-Range 7(3), Mumbai
5) ǒवभागीय ूितिनिध "" , आयकर अपीलीय अिधकरण, मुब ं ई/ The D.R. "G" Bench, Mumbai.
6) गाड[ फाईल Copy to Guard File.
आदे शानुसार/By Order / / True Copy / / उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai *चåहान व.िन.स * Chavan, SPS